Answer (B) is correct . Static budgets are prepared based on the best estimates for output to be produced and costs to be incurred before the period begins. If there are any variations in conditions actually experienced, the static budget is unhelpful for diagnosing specific problem areas since it only reflects one level of activity.
Answer (A) is incorrect because A static budget is easier to prepare than a flexible budget.
Answer (C) is incorrect because The size of the variances encountered is not a function of the budgeting system used.
Answer (D) is incorrect because Variances are no harder to compute under static budgeting than under flexible budgeting.
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